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Joe is a fresh face in the industry, having joined CM six months ago. Although he writes on all subjects, he has a particular interest in environmental regulation of shipping and in the growing African container terminal market.

Panama Canal expansion: Too little, too late?

Leaks in the locks have hindered the expansion of the Panama Canal

As delegates gathered in Panama City for the TOC Americas show, the Panama Canal was naturally the centre of attention and the subject of many urgent questions. Will it be ready on time? Will it be big enough? Which ports will benefit?

The conference opened with a speech from Jorge Quijano, the boss of the Panama Canal Authority (ACP), who insisted that, despite leaks in the Cocoli locks, the canal would be ready by April 2016. He was followed by Oscar Bazan, the ACP’s marketing manager, who said he was tired of being asked by carriers whether April 2016 is a firm date. The answer is yes, he said. Another ACP employee told me that the expanded canal’s opening ceremony/transit is already being planned.

Apart from the ACP though, not a single person I spoke to, at the conference and at Panama’s ports, thought it would be ready on time. Even my taxi driver was skeptical. “Theres no way it will be ready by April” he said and I am inclined to agree. How can the locks start leaking without that causing a delay? That’s before we get into the lack of water in Gatun Lake and the question of how tugboats will safely help ships transit, which the unions will have something to say about.

Remarkably then, the well-respected Senor Quijano seemed to be escaping criticism, with delegates blaming the builders and sympathizing with the ACP. Respect for Quijano bordered on adoration in some cases. One smitten American said to me: “He’s just so dashing: he looks the part and he is the part.” While, the construction consortium may be largely at fault, it was chosen by the ACP, who therefore must take its share of the blame.

Another question for the ACP is whether, even after expansion, the canal is still too small. While 14,000 teu ships will be able to transit, the world’s biggest are nearly 20,000 teu and getting bigger. Quijano said that he had no regrets about not building it bigger. For this, he gave three reasons, the first two of which seem unconvincing to me. Firstly, Panama is a small country and canal expansion is a big investment so the return on that investment needs to be high. Secondly, he is not convinced that the size of container ships will continue to rise, pointing to the example of oil tankers, which increased and then decreased in size. Finally, he said that a bigger canal would need more freshwater despite Panama’s ample rain.

To be fair to him, comparisons with the Suez Canal, which can take the world’s biggest ships and was expanded in just one year, to Panama’s nine or ten years, are unfair. The Suez Canal is a saltwater canal built through sand, by a country with a GDP of US$272bn. On the other hand, the Panama Canal is freshwater, its expansion requires the removal of land, hills and even unexploded American bombs, and Panama has a GDP of just US$42bn. Nevertheless, if an expansion is worth doing, it’s worth doing properly and, with the biggest ships still unable to transit, the expansion looks only half complete.

The expanded canal will open at some point though and should bring increased throughput to the Caribbean. Optimistic estimates are of around 5m teu extra transshipment throughput to the region, which many ports have expanded in order to try and attract. Not all of them will be successful.

Intuitively, you would think that the most obvious beneficiaries are the ports at either end of the Canal, in Panama City and Colon. On the contrary though, the expansion may work against them, as big ships will no longer be forced to transfer their cargo into smaller ships, trains or trucks, to cross the Panamanian isthmus. With the era of `forced transshipment` over, Panama’s new and existing terminals will have to fight their competitors for transshipment cargos on their own merits alone. The competition will be fierce.

About Joe Lo

Joe is a fresh face in the industry, having joined CM in July 2014.
Although he writes on all subjects, he has a particular interest in environmental regulation of shipping and in the growing African container terminal market.